Valuing your trade
Accountants, financial advisers and pundits have diverse opinions about trading your current vehicle at a dealership as part of the purchase of a new vehicle. The internet, too, is rife with opinions.
That doesn't mean, however, that trading is a bad idea. Owners have different needs. Cars have different values. No universal answer exists. The math done by an accountant, financial adviser or pundit often excludes soft factors like time, convenience, liability, safety--and each has an associated value.
Dealer's evaluation
The act of evaluating a trade is part analysis, part psychology, part experience and, in the hands of a good assessor, can yield a significant profit. Like almost every aspect of buying a new car, the needs of the dealership remain fluid and can change quickly over a 24 hour period with one constant remaining throughout: yielding maximum profit.
Psychology I: The dealership "walk around" vehicle evaluation
The power of psychology is on full display when a dealer physically walks around the vehicle, inspecting its condition. If possible, the assessor wants the current owner to watch while they touch, squint and pause, all the while remaining quiet, never saying a word unless there is a problem so evident that, to ignore it, would be to ignore an elephant in the room. The more quiet an assessor stays, the more uncomfortable most buyers become, always wanting to fill the silence with explanations of imperfections that the dealer will feed back to the customer when the dealer makes their offer on the trade.
Psychology II: The dealership "walk around" of you
Be assured that, when the assessor is walking around the vehicle, they are assessing you as much as they are the car. They're looking at your clothing brand, jewelry, hairstyle and personal grooming. Luxury brands suggest that you're affluent and/or willing to pay more for a product. If you have small children, they know you'll probably be pressed for time. If you've arrived just before lunch or dinner, they know you'll be getting hungry. If you've arrived with a trade that is barely running, they know you're desperate. All these factors are considered before a dealer makes an offer.
The dealer test drive
Beyond the psychology, most dealers will want to take your vehicle for a quick ride to evaluate ignition, handling, braking, etc. Some will invite you for the ride. Others will test drive your vehicle while you're test driving their vehicle. If you're in the car, remain silent.
Private dealer resources for valuing your trade
Dealerships have multiple private resources on which they rely when placing their value on your trade. In addition to the walk around evaluation, the dealership's current inventory, monthly sales goals, recent sale prices on comparable models and regional auction pricing all factor into their offer, ensuring that every dealer will give you a different figure. Sometimes the difference will be one hundred dollars. Sometimes it will be one thousand dollars--or more.
Considering a private sale?
Owners considering a private sale choose to do so with the singular intent of maximizing their bottom line and, for some owners, no other option will satisfy. Sometimes, selling one's vehicle is a point of pride that represents self-sufficiency and independence, regardless of the price at which they sell the vehicle. Others need every last dime derived from a sale. Still, others want to avoid negotiating the value of their vehicle with a dealership.
At the end of the day, whether a new car buyer chooses to trade or sell privately, a squishy equation containing many variables gets used to determine value. The following variables should be considered when contemplating a private sale.
Time
It takes twenty hours to sell the average car . Between taking pictures, drafting the post, responding to text messages, setting appointments, having people not show up, having prospects low ball, and negotiating a final price , the time required to maximize the vehicle’s value can be substantial.
Liability
Often overlooked, the liability of having a stranger test drive your car can be significant. At the very least, an accident during a test drive will require the sacrifice of your insurance deductible and could cause your premiums to skyrocket. At worst, a prospect can litigate for damages real and perceived, exposing your assets beyond the cost of your deductible.
In this context, some dealers require a prospective new car buyer to produce a current insurance card before they agree to a test drive — a prudent policy that protects the dealership. An insurance card proves to the dealership that an insurance company believes in a driver’s skill enough to issue insurance and, in the event that you check a prospect's insurance card during a private test drive, you lack the comprehensive financial protection a dealership can easily afford.
Check with your insurance carrier before beginning the process of a private sale.
Safety
An owner never knows who will show up to test drive their car. Considerable care should be taken.
Most car sellers are awful negotiators
It’s a fact that cuts both ways. Owners are as ineffective negotiating the sale of their current car as they are negotiating the purchase of a new car. Success requires knowledge, nuance and practice. New car dealers prepare responses to buyer’s objections that the buyer never sees coming and, as a result, buyers pay higher prices for new vehicles. Prospective buyers considering the purchase of your current vehicle can go online, generate a valuation and stick to their guns. Even informed owners can lack the ability to respond and bluff.
FACTORS THAT INFLUENCE A DEALER’S VALUATION
The following list of factors has been broken into three: Positive, Negative and Influencing. Particular attention has been paid to the negative factors because those are the factors that cause the value of your vehicle to plummet. In this context, the positive factors rarely have the ability to increase the value, they simply have the power to minimize the effect of a negative factor.
Positive factors
When possible, owners should limit discussions about their car to the following items and redirect if other topics are involved.
Good record keeping
If an owner can prove a car has been maintained, the vehicle’s value will be higher as a result. Key records include oil/filter changes, inspection findings, replaced parts, etc.
Low mileage
Less mileage equates to an expected longer life for the next owner. Combined with good record keeping — or lack thereof — it’s possible to deduce engine life.
No reported accidents
Dealers and private prospects can easily check a vehicle’s history using CarFax.
Both sets of keys
Used car buyers demand two sets of keys/fobs. Replacement costs can reach $250. If an owner doesn’t have a second key, especially an electronic key fob, a price reduction should be expected.
Cold air conditioning
The sooner a vehicle's air conditioner reaches it's coldest maximum temperature--and continues to maintain the temperature--the better the valuation.
Nickels and dimes
Little things can make a big difference. Newer windshield wipers are a great place to start, as are clean armrests, headrests, steering wheels and carpeting.
Curb appeal
Everybody responds well to a clean, shiny, good looking vehicle and, while dealers are less susceptible to superficial factors, they're not impervious to a little flash and cleanliness. Motivated owners might even consider steam cleaning the vehicle's engine.
High volume vehicles with predictable consumer demand
Generally speaking, the more popular and affordable a car is when new, the more popular it will be when it's used. Dealerships want vehicles they can get off the lot quickly because every day it sits cost the ownership money. Predictable demand makes for predictable revenue.
Vehicles rated highly in the trade and consumer press
Consumers look to experts to safety data, reliability information, repair cost comparisons, handling descriptions, cargo capacity and more. The better rated a vehicle, the stronger the consumer demand.
Negative factors
Both dealers and private buyers will always focus on the negative. Surprisingly, owners often focus on the negative too. The key to dealing with a factor that will reduce the value of your car isn’t to avoid the problem — it’s to minimize the problem. Never deny a problem. Redirect, deflect and, if all else fails, plead ignorance.
Dings
Prospective buyers — private buyers, dealers and dealer’s customers — can be turned off by even the smallest superficial imperfections, and some dings can’t be hidden. Owners should tell a quick story if confronted, deflect and move on to something less negative. Be assured, dealers can fix dings with minimal expense.
Tire tread
In states that require vehicle inspection, tire replacement can cost thousands. A common suggestion for measuring tread life is to stand a penny on its end between the treads and, if the top of Lincoln’s head is visible, the tires need to be replaced. That said, try to grab the tread with your fingertips--it's a better gauge. Good tread will give your fingers something to grip. Great tread will allow your fingertips to disappear between the treads.
Torn or stained upholstery
Small tears or stains can be overlooked. Big stains and tears — the kind that will require replacement or professional cleaning — can devalue the car substantially because dealerships aren't in the upholstery or steam cleaning business. Also, if ceiling fabric is starting to sag, it will need to be fixed or a significant deduction should be expected.
Foggy headlights
Fogged and milky headlight lenses scream of a vehicle's advanced age. Replacement can be expensive.
Smoke smell
Cars that smell of cigarette smoke are virtually impossible to sell. Even smokers don’t want to buy them. Dealers have techniques for mitigating the smell over the short term, but few effective long term solutions exist if the new owner is especially sensitive to the smell of cigarette smoke. Owners should expect a significant price reduction.
Mildew
Mildew is a sign of a chronic leak. Could be old window stripping or failing adhesive around glass, but a musty smell can quickly turn off a prospective buyer. Curb appeal is critically important, but a buyer’s sense of smell is hard to overcome no matter how beautiful the vehicle. It should be noted, too, that a chronic leak can allow water to collect beneath floor carpeting, potentially causing rust.
Engine / dashboard light
There’s almost no way to defend a triggered dashboard light, even if the problem has been identified. Dealer's project thousands of dollars in repairs. The answer to the question of why it hasn’t been fixed, in the dealer’s mind, is that it can’t be fixed or the owner doesn’t have the money and is desperate to sell. Often, in an older car, it means the catalytic converter needs to be replaced — an expense that can cost thousands of dollars for some brands and models. Experienced appraisers can deduce the problem on the spot and plan for the most extensive repair--reducing their offer in the process.
Worn brake pads and rotors
If your vehicle's brakes are mushy during the dealer's test drive, the brake pads and rotors will need to be replaced before the dealer tries to resell the vehicle.
Engine knocking / funny sounds
Most owners know when their car begins to make an unusual noise. Poor quality gas can cause an older engine to knock. Brakes that need to be replaced can screech. Loose bolts can rattle. Wheel well plastic can rub against tires. Failing transmissions can jerk loudly when shifting. Funny sounds can sacrifice thousands.
Engine / external vehicle smells
In particular, the smell of burning oil is problematic. Whether it can be observed while the vehicle is running or only when the hood is raised, it can cause a reduction in the vehicle's value.
Poor / jerky acceleration
If the vehicle doesn't respond appropriately to the accelerator pedal being depressed--either with a slow response, an unpredictable or a jerking response--the dealership will reduce their offer.
Influencing factors
Some factors have nothing to do with an owner’s time or the vehicle’s structure, performance or history -- the factors are unique to the vehicle's brand.
Model year-end
As a rule of thumb, the model year ends in August/September for many franchise brands--not December. Sometimes, beginning in late July, television advertising begins to blast consumers with the need to move last year's left over inventory off the lot to make room for new inventory. That said, not all new models arrive at the beginning of the model year so, in many cases, the model year-end marketing message is more about creating urgency than strictly adhering to the arrival of new models--but the model year end can have a real impact on the value of your trade.
Trade values drop at the end of the model year. The month the car was purchased doesn’t matter, just the model year. If a buyer trades a car before the model year turns over, a dealer will often offer more. Private buyers don’t turn the calendar until December.
Franchise brand
If an owner trades a vehicle at the same dealership from which the car was purchased—or at a dealership that sells the same brand vehicles—the value will often be higher. Loyalty pays.
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